Tanker market upside constrained

Feb 19 2016

There is limited upside for tanker earnings from current levels to April, as timecharter rates will come under pressure, as a result of growing supply of large crude and products tonnage, a consultancy has warned.

According to the latest ‘Tanker Freight Forecaster’ from Maritime Strategies International (MSI), following a strong last quarter of 2015, the tanker freight market witnessed a substantial drop during the first half of this year.

For example, VLCC spot earnings have effectively halved from their December highs and are currently at around $50,000 per day. Product tanker rates also drifted substantially lower after a spike at the start of the year.

MSI said that global oil demand growth is likely to be higher this year than the cautious estimates given by the IEA, supported by low prices, although this view is based on macro-economic stability, the consultancy said.

Floating storage will provide a potential outlet to a weaker trade growth scenario for crude and product tanker markets in what will be another year of excess oil supply at the global level.

Tim Smith, MSI’s senior analyst, said: “Strong Middle Eastern production, potential for rising US crude imports, and China’s appetite for crude driven by both new import licenses and storage builds should provide support this year for crude tankers, but risks on the demand-side are growing.

“Our spot rate outlook sees muted upside from current levels by April whilst we expect to see T/C rates start to come under pressure this year as a result of growing fleet supply, particularly at the larger ends of both the crude and products segments,” he said.

As in the crude tanker sector, floating storage is likely to play a growing role for products tankers this year, particularly for larger sizes. This could act as a useful brake on what will be high LR2 fleet growth.

A growing middle distillates glut in Asia, combined with an influx of large crude tanker newbuilds, could see an increase in clean products stored and moved on these vessels' first voyages. Diesel inventories in Europe are swollen and the influx is set to continue in 1Q16, as global exports from regions, such as the Middle East, Asia and US show little sign of let up.

Refinery maintenance is likely to partially redress the balance in 2Q16 and could provide an opportunity for tighter margins but over a six-month horizon, distillate oversupply is likely to remain a key theme.

The MSI forecast reflected a market in which imbalance has, thus far, proved positive for rates, although downside risks appear to be growing from a macro-economic perspective., the consultancy said.